Voguish Couches is a small company which makes sofas. The company is owned by the couple...

 
 
 

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Voguish Couches is a small company which makes sofas. The company is owned by the couple Lennox and Stewart. You are an intern working at Voguish Couches. For the sake of simplicity, this assignment does not consider taxes and other fees and there is no stock or work in process in the beginning or end of every year. As a consequence, all the amount of stock produced is sold during the year, hence the amount of sales equals the number of goods produced. You might have to use information from previous questions for answering information for following questions and whenever possible support your arguments with your calculations. Coombes is examining the activities for the past year. Voguish Couches rents a small administrative office in Melbourne s central business district (CBD) for $30,000 per year and a large warehouse in Tullamarine for $40,000 per year. The cost with salary for staff in the administrative office in the CBD is $90,000 per year. Voguish Couches has hired a firm for managing the sales and this firm charges a commission of $50 for each completed sale. The invoicing system used by Voguish Couches is outsourced and for each sale completed the firm charges $5. The administrative office had in the past year other miscellaneous costs of $5,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come. A full-time employee gets paid $80,000 per year for supervising the casual staff working in the warehouse in Tullamarine. Like the administrative office, the warehouse had other miscellaneous costs of $5,000 in the past year and is expected to remain the same amount for years to come. Voguish Couches has a contract with a delivery firm for delivering the copies of the sofas to their clients, but Coombes is not able to find the contract and is not sure how much the firm charges per transaction. The only information he can gather is regarding the past years: Table 1 - Annual unit delivery and costs Year Two years ago Three years ago Four years ago Delivery Cost Units Delivered $1,500 $1,420 $1,480 ¹ This is the additional reading for this unit. A copy of the document is available at https://www.imanet.org/insights-and-trends/business- leadership-and-ethics/ima-statement-of-ethical-professional-practice Page 4 of 9 Material Fabric Timber Foam Button stud Varnish Bolt 600 575 580 Five years ago $1,400 550 Below is a table listing all the material used during the past year to manufacture 500 sofas and the costs incurred. There was no stock or work in process in the beginning or end of the year. Table 2 - Material costs Quantity 1,500 m² 6,000 Units 500 Kilograms 5,000 Units 500 Litres 5,000 Units Total Cost $3,000 $36,000 $250 $500 $10,000 $500 The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $30 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per sofa. Once the timber is ready for being assembled a casual staff is paid $25 per hour for assembling the sofa with the bolts and adding the paddings (fabric, foam, and button studs). The assembling takes only 1 hour per sofa. The final stage of manufacturing is varnishing the sofa. A casual staff is paid $27 per hour for varnishing the sofa and this task takes 2 hours. Question 5 Voguish Couches has a production budget of 600 sofas for the current year and for allocating the manufacturing overhead (i.e., indirect cost pool) Voguish Couches uses the direct labour-hours (i.e., cost- allocation base). Lennox and Steward are not sure whether the production budget will be met and some of its consequences. Required a) If the quantity produced in the current year reaches the budgeted amount of 600 sofas whereas in the past year the production was 500 sofas, Coombes says the unit product cost in the current year will decrease when compared to the previous year because the production has increased. Is Coombes right or wrong in his statement and why? Use calculations for supporting your argument. (Chapter 2, 10 marks) b) Considering Voguish Couches uses budgeted indirect costs during the year, if the quantity produced in the current year is only 500 sofas whereas the production budget for the current year is 600 sofas, Coombes says there will be an overallocation of indirect costs. Is Coombes right or wrong in his statement? What could lead to an overallocation or underallocation of indirect costs specifically for Voguish Couches? Use calculations for supporting your argument. (Budgeted indirect costs and end- of-period adjustments, Chapter 3, 10 marks) Voguish Couches is a small company which makes sofas. The company is owned by the couple Lennox and Stewart. You are an intern working at Voguish Couches. For the sake of simplicity, this assignment does not consider taxes and other fees and there is no stock or work in process in the beginning or end of every year. As a consequence, all the amount of stock produced is sold during the year, hence the amount of sales equals the number of goods produced. You might have to use information from previous questions for answering information for following questions and whenever possible support your arguments with your calculations. Coombes is examining the activities for the past year. Voguish Couches rents a small administrative office in Melbourne s central business district (CBD) for $30,000 per year and a large warehouse in Tullamarine for $40,000 per year. The cost with salary for staff in the administrative office in the CBD is $90,000 per year. Voguish Couches has hired a firm for managing the sales and this firm charges a commission of $50 for each completed sale. The invoicing system used by Voguish Couches is outsourced and for each sale completed the firm charges $5. The administrative office had in the past year other miscellaneous costs of $5,000, mostly costs with the lease of material and stationery, and this yearly cost is expected to remain the same amount for years to come. A full-time employee gets paid $80,000 per year for supervising the casual staff working in the warehouse in Tullamarine. Like the administrative office, the warehouse had other miscellaneous costs of $5,000 in the past year and is expected to remain the same amount for years to come. Voguish Couches has a contract with a delivery firm for delivering the copies of the sofas to their clients, but Coombes is not able to find the contract and is not sure how much the firm charges per transaction. The only information he can gather is regarding the past years: Table 1 - Annual unit delivery and costs Year Two years ago Three years ago Four years ago Delivery Cost Units Delivered $1,500 $1,420 $1,480 ¹ This is the additional reading for this unit. A copy of the document is available at https://www.imanet.org/insights-and-trends/business- leadership-and-ethics/ima-statement-of-ethical-professional-practice Page 4 of 9 Material Fabric Timber Foam Button stud Varnish Bolt 600 575 580 Five years ago $1,400 550 Below is a table listing all the material used during the past year to manufacture 500 sofas and the costs incurred. There was no stock or work in process in the beginning or end of the year. Table 2 - Material costs Quantity 1,500 m² 6,000 Units 500 Kilograms 5,000 Units 500 Litres 5,000 Units Total Cost $3,000 $36,000 $250 $500 $10,000 $500 The manufacturing activity is made by casual staff. The first stage is the woodworking, where a carpenter is hired by $30 per hour for working with the timber. This task is very labour intensive and for preparing the material a carpenter takes 5 hours per sofa. Once the timber is ready for being assembled a casual staff is paid $25 per hour for assembling the sofa with the bolts and adding the paddings (fabric, foam, and button studs). The assembling takes only 1 hour per sofa. The final stage of manufacturing is varnishing the sofa. A casual staff is paid $27 per hour for varnishing the sofa and this task takes 2 hours. Question 5 Voguish Couches has a production budget of 600 sofas for the current year and for allocating the manufacturing overhead (i.e., indirect cost pool) Voguish Couches uses the direct labour-hours (i.e., cost- allocation base). Lennox and Steward are not sure whether the production budget will be met and some of its consequences. Required a) If the quantity produced in the current year reaches the budgeted amount of 600 sofas whereas in the past year the production was 500 sofas, Coombes says the unit product cost in the current year will decrease when compared to the previous year because the production has increased. Is Coombes right or wrong in his statement and why? Use calculations for supporting your argument. (Chapter 2, 10 marks) b) Considering Voguish Couches uses budgeted indirect costs during the year, if the quantity produced in the current year is only 500 sofas whereas the production budget for the current year is 600 sofas, Coombes says there will be an overallocation of indirect costs. Is Coombes right or wrong in his statement? What could lead to an overallocation or underallocation of indirect costs specifically for Voguish Couches? Use calculations for supporting your argument. (Budgeted indirect costs and end- of-period adjustments, Chapter 3, 10 marks)